The Two Reasons Why Alibaba Is About to Invest in South Korea’s Coupang

Coupang

Logistics and Amazon.

Let’s talk about Korean logistics first.

Coupang is seeking new capital. The Investor:

Korea’s leading e-commerce firm Coupang is seeking to raise fresh funds worth US$500 million ahead of a potential initial public offering in New York, according to news reports on July 13.

​Coupang has been heavily investing in its logistics operation, leading to massive losses:

The new funding plans come at a time when the company is losing money despite its business expansion in recent years. According to the firm’s latest earnings report, its operating losses over the past two years have reached 1.2 trillion won (US$1.05 billion) that is almost equivalent to the total US$1.6 billion funding it attracted from SoftBank, Sequoia Capital and Black Rock.

Coupang, established by Harvard dropout Kim Bom in 2010, is best known for its signature Rocket Delivery service which promises delivery within 24 hours. The company has been spending big especially on logistics.

​It is mainly that Rocket Delivery that sets Coupang apart. Just recently, Coupang won a lawsuit regarding the delivery service. (This lawsuit may have led to Alibaba holding out.)

It is this aggressive logistics expansion that makes Coupang seeking new capital before its IPO. It is also this logistics infrastructure that creates a market entry barrier for Alibaba and others.

Business Korea:

On July 19, Alibaba completed a large five-story logistics center with a total floor area of 35,392 square meters in Oryu-dong, Incheon, through ICB, an official partner in South Korea of Cainiao, a logistics subsidiary of Alibaba, pushing into the South Korean market in earnest. This is why some say that the Chinese company is seeking to indirectly enter the domestic market through the investment in Coupang as it is hard to directly enter the market whose online logistics services have already entered a mature stage.

(Highlight by me)

Business Korea on the Alibaba-Coupang rumor:

Under the current circumstances, the rumor about Alibaba’s investment in Coupang is gradually accepted as truth. This is because Jung Hyung-kwon, who served as financial executive at Coupang from 2015 to the end of 2016 and was appointed as Alipay Korea CEO in February this year, and his elder brother Jung Hyung-jin, CEO at Goldman Sachs Korea, are seeking to attract investment for Coupang.

Coupang recently launched its own private label:

Coupang will start with five items: toilet paper, tissues, bottled mineral water, bottled sparkling water and paper cups. The company plans to later expand the portfolio to pet supplies and home cleaning products.

While fighting with WeMakePrice:

Coupang and WeMakePrice, the two frontrunners that started as social commerce companies are having intensifying competition.

WeMakePrice reportedly recorded W370 billion won (US$333 million) in transaction volume in June. In the same period, Coupang’s transaction volume was estimated at 400 billion won (US$360 million). […]

WeMakePrice said its March transaction volume exceeded 300 billion won (US$270 million). As a result, the volume grew more than 20% in three months.

​The second reason for Alibaba investing in Coupang is the global cold war against Amazon. Amazon is finally about to go into the Korean market. Helping Coupang, which is already strong on the logistics side, is almost a no-brainer for Alibaba at this point. The cost-benefit of this for the Chinese giant couldn’t be better.

It’s going to be costly for Amazon to enter South Korea:

According to the distribution industry on July 31, Amazon Korea recently hired dozens of full-time employees, including marketing, sales, technical support and service support related to online shopping business. It was also reported that the company had a discussion with one of Korean financial companies in relation to electronic payment settlement. It is presumed that Amazon’s Korean branch is preparing to engage e-commerce business in Korea. […]

Currently, Amazon is engaging in the cloud service business (Amazon Web Service) and overseas shopping (Amazon Global Selling) only and is not doing the e-commerce business (Amazon.com) in Korea. Now, when Korean consumers buy goods at Amazon.com, they are shipped to Korea from a US or European distribution center, and no Korean Amazon website is in operation.

The Stack:

In the last week alone, the e-commerce giant advertised for 49 full-time positions and internships in Seoul, many within Global Selling, Marketing, and Business Development. […]

South Korea represents one of the biggest e-commerce markets worldwide, with an existing market of $19.12 billion in 2016 expected to grow to over $32 billion by 2021. This represents the highest e-commerce penetration in the APAC market, with 72% active online shopping reach.

​More on this topic:

One comment

  1. […] of the merger, Dada operated 1.3 million couriers in 37 cities. ​ ​More on this topic: ​ ​* The Two Reasons Why Alibaba Is About to Invest in South Korea’s Coupang ​* Alibaba and JD.com Are Bidding Against Each Other to Invest in Indonesia’s Tokopedia ​* […]

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